IRVINE, Calif. and SILICON VALLEY, Calif., Aug. 3, 2017 /PRNewswire/ --Ten-X Commercial, the nation's leading online real estate digital marketplace, today released its latest U.S. Multifamily Market Outlook, including the top five "Buy" and "Sell" markets for multifamily real estate assets. The report shows that while fundamentals have begun to soften, demand across the apartment market remains strong due to positive demographic trends that continue pushing millennials and other Americans to forgo homeownership in favor of renting.

The report pinpoints Sacramento, Calif., Phoenix, Las Vegas, Raleigh-Durham, N.C., and Jacksonville, Fla., as the five markets where investors should consider buying multifamily properties. Favorable demographic trends are on full display in these regions, where employment stands at record or near-record levels, and a combination of high demand and light supply pipelines are bolstering rent levels.

The Ten-X analysis also identifies New York City, San Francisco, San Jose, Calif., Washington, D.C., and Oakland, Calif., as markets where investors may consider selling multifamily assets. These mostly major markets seeing an onslaught of new supply pushing up vacancies and rents may already have reached their peaks, leaving them vulnerable to diminished returns for investors.

Completions across the apartment sector slackened in the first quarter after a record 2016, totaling just 39,000 units. Absorption marched in sync with completions, however, with figures in the first quarter clocking in well below 2016 rates. Ten-X projects the absorption rate to improve during 2017, though hardly enough to absorb the 330,000 new units that will be completed over the course of the year.

Vacancies rose by 10 bps to 4.3 percent in the first quarter, remaining flat over the last year. While apartment vacancy has plateaued in most markets, the supply pipeline is unevenly distributed throughout the country, making certain markets more vulnerable to rising vacancies. On a national level, the massive influx of new supply is expected to increase the vacancy rate to 5 percent by 2018 before declining demand pushes it to 6.2 percent by 2020 during a modeled economic downturn.

Stalling vacancy rates have also harmed rent growth around the country. Seasonally adjusted effective rents rose just 0.4 percent during the first quarter, according to REIS. Annual growth, meanwhile, has cooled to just 3 percent year-over-year – a marked deceleration from the robust increases the sector enjoyed earlier in the cycle. Other discouraging fundamentals include the decline of deal volume to a three-year quarterly low of just below $27 billion. Multifamily cap rates stood flat in the first quarter at 5.2 percent after a rise in late 2016.

Despite uneven fundamentals, several demographic trends continue to prop up the multifamily market. Household formations remained steady at a healthy pace of around 1.6 million in 2016. A solid labor market continues to drive absorption, as debt-ridden millennials increasingly delay marriage and homeownership in favor of renting. As youth employment and wages continue to rise, the 31 percent of 18- to- 34-year-olds currently living at home should be drawn into the market, creating a key demand source that has yet to be fully tapped.

"The current state of the multifamily sector is a perfect example of the time-honored notion that 'demographics is destiny.' While softening fundamentals indicate that the sector is poised for a slowdown, that shift has yet to arrive in earnest," said Ten-X Chief Economist Peter Muoio. "While many large metro areas are increasingly exposed to both cyclical risk and massive oversupply, the overall market is being sustained by significant societal shifts that is driving strong, sustained demand. As long as gainfully employed millennials and other Americans continue to choose renting over homeownership, a majority of multifamily investors can be confident that rents will continue to rise."

The Multifamily Sector's Top Five 'Buy' Markets:

Sacramento

Rents in California's capital are growing at a breakneck pace, as a modest supply pipeline has kept vacancies at near-record lows. The market is further boosted by consistent gains in overall employment, which, driven by robust increases in the government sector, posted growth in the mid-1-percent range over the last year. The city's population also jumped 1.3 percent in 2016, outpacing the national average. Sacramento's overall market strength is expected to help it weather the Ten-X recession downturn scenario in 2019-2020, with solid gains in NOI projected to continue during that span.

Phoenix

Effective rents in Phoenix have increased 4.6 percent over the last year, and Ten-X Research forecasts rents to jump by more than 5 percent through 2018. Much of the growth can be attributed to tightening availability, as vacancies remain in the mid-4-percent range despite a healthy supply pipeline. Employment in the city is at an all-time peak despite slowing growth in several key sectors, while population increases remain at healthy levels. Even with a cooldown in rents under the Ten-X recession downturn scenario, investors should continue to see healthy returns through 2019-2020.

Las Vegas

Las Vegas' multifamily market is being bolstered by steady population growth and employment that has reached an all-time peak despite recent softening in the leisure/hospitality segment. The city enjoys a favorable supply-demand dynamic, as vacancies are expected to decrease from the mid-3 percent range to roughly 2.6 percent by the end of 2018. With rents at record highs, Ten-X Research projects stellar 5.1-percent average annual NOI growth over the next two years. Tight vacancies and solid rent growth should keep NOI gains in the mid-2-percent range during the expected downturn in 2019 and 2020.

Raleigh-Durham

Thanks to a strong and outsized professional/business services sector, total employment in Raleigh-Durham is now 14 percent above its pre-recession peak. Regional population is also growing at more than twice the national rate, helping to drive torrid annual rent growth of between 4 and 5 percent for multifamily properties. Although a recent influx of supply has kept vacancies in the 5-percent range, Ten-X Research expects local demand to stay resilient during the 2019-2020 recession downturn scenario, giving the area one of the brightest apartment outlooks in the nation.

Jacksonville

Jacksonville's apartment sector is being boosted by strong demographics, with the market's population expanding at three times the national rate. Employment has seen a similar increase, with thriving education/healthcare and professional/business services sectors anchoring the region's strong economy. According to REIS, effective rents are enjoying solid growth in the mid-3 percent range. A manageable supply pipeline will allow vacancies to fall to a cycle-low 4.3 percent by year's end, according to Ten-X projections, while NOI growth should hover around 5 percent this year before falling to the mid-3 percent range through 2020.

The Multifamily Sector's Top Five 'Sell' Markets:

New York City

New York City is suffering from an unprecedented supply boom of market-rate apartments following the completion of nearly 10,000 units since early 2016. Another 40,000 market-rate units are due to deliver by the end of 2018, which should drive vacancies above 11 percent. Though metro employment is at an all-time high, the pace of job growth has cooled, and the city's population is growing at its slowest rate since 2007. Effective rents have already begun to contract, and will decline by 2.7 percent annually through 2020. NOI will march in lockstep with rents, declining by an annual average of 4.5 percent in the same timeframe.

San Francisco

Multifamily completions have outpaced absorption in San Francisco every year since 2014, leading to a steadily rising vacancy rate. Rents weakened last year in response to increasing availability. While the city's unemployment ranks well below the national average, the pace of employment growth has slowed from the upper-4-percent range in early 2016 to the mid-2-percent range in 2017, due in large part to a slowdown in the city's critical information sector. According to Ten-X projections, the region is likely to face annual NOI declines of roughly 4.7 percent through 2020.

San Jose

Slackening demand and a surge of new supply have dampened multifamily prospects in the Silicon Valley hub of San Jose, pushing vacancies up to the low-4-percent range. While the area's information sector remains strong, overall job growth has cooled significantly. Unemployment is tight at roughly 3.4 percent, though a slowdown in population growth is limiting the potential for future expansion. Effective rents, which saw meteoric growth earlier this cycle, have seen dramatically slowed expansion, and rents are expected to begin contracting in 2018, as vacancies climb above 7 percent. The region is expected to see annual NOI declines averaging 3 percent from 2017-2020.

Washington, D.C.

In a market where government accounts for three of every 10 jobs, uncertainties about federal hiring have all but put employment growth on hold. While unemployment exceeds the national average, D.C. demographics are booming, with the city experiencing population growth of 1.6 percent in 2016. Trouble for the market is looming in the form of a supply surge that will introduce some 12,000 new apartments by the end of 2018. Ten-X forecasts that demand will be unable to keep up with incoming supply, pushing vacancies above 9 percent by the close of 2020, and stagnating NOIs for multifamily investors.

Oakland

Employment levels are at an all-time peak in Oakland, propelled mainly by the professional/business services and education/healthcare sectors. While population growth in Oakland exceeds the national average, the market is subject to negative spillover effects from declines in San Francisco's information industry. Apartment vacancies remain low at 3.4 percent, but that figure represents a 40-basis-point increase in the last year. Under the Ten-X 2019-2020 downturn scenario, completions are forecasted to heavily outweigh demand and trigger rent contractions. Modest NOI gains in 2018 are projected to give way to average declines of 4.4 percent per annum in 2019 and 2020.

About Ten-X

Ten-X is the nation's leading online real estate transaction marketplace and the parent to Ten-X Homes, Ten-X Commercial and Auction.com. To date, the company has sold 292,000+ residential and commercial properties totaling almost $48 billion. Leveraging desktop and mobile technology, Ten-X allows people to safely and easily complete real estate transactions online. Ten-X is headquartered in Irvine and Silicon Valley, Calif., and has offices in key markets nationwide. Investors in the company include CapitalG (formerly Google Capital) and Stone Point Capital. For more information, visit Ten-X.com.